Event based SMSF reporting: Update on frequency

Gabriela Rusu looks at the ATO’s final position on the event based reporting framework for the SMSF sector, as well as some of the myths surrounding this reporting.

Late last year, the ATO released information in relation to how often SMSFs should report events to the ATO that affect an individual’s transfer balance account (TBA) to facilitate the management of the new transfer balance cap (TBC) of $1.6 million.

During the consultation process, the SMSF community raised concerns about the benefits of event based reporting versus potential administrative affects and the costs for SMSFs with members with balances significantly lower than the TBC of $1.6 million, and asked the ATO for less frequent reporting requirements for SMSFs with smaller member balances.

After months of deliberation, the ATO agreed to grant a special dispensation for SMSFs whose members’ total superannuation balances (TSBs) are less than $1 million.

Frequency of reporting for SMSFsIn terms of the frequency of reporting, the ATO made the decision that from 1 July 2018:

SMSFs whose members’ TSBs are less than $1 million can choose to report any events that affect their members’ TBA annually at the same time that they lodge their SMSF annual return.

SMSFs with members whose TSBs are $1 million or more will report events affecting members’ TBA within 28 days after the end of the quarter in which the event occurs.

In essence, an SMSF’s reporting framework is set by looking at the TSB of each member of the fund (whether in accumulation or pension phase).

SMSFs are only required to assess their reporting frequency in relation to the $1 million threshold once, either at 30 June 2017 (when the SMSF has a retirement phase pension just before 1 July 2017), or at 30 June immediately before the year in which the first member of the fund commences their first retirement phase pension rather than at the date the first pension is commenced.

This will set the reporting framework for the fund. Once the SMSF’s reporting frequency has been determined it will not change, meaning the fund will not move between annual and quarterly reporting regardless of fluctuations to any of its members’ balances or whether new pensions are commenced.

Given a member’s TSB takes into consideration the total value of their retirement phase and accumulation phase interests across all their super providers, it is worth noting that the $1 million TSB rule applies even if a member with more than $1 million across multiple funds is not receiving a pension and has less than $1 million in their SMSF.

Summing it all upAs seen in the table at the end of this page, SMSFs must report the 30 June 2017 value of any pre-existing retirement phase pension to the ATO on or before 1 July 2018. TBC events that occur during the 2017-18 year are required to be reported from 1 July 2018 at the same time the SMSFs first “Transfer Balance Account Report” (TBAR) is due – for those reporting annually, this will be the same time as the time they lodge their 2017-18 SMSF annual return whereas for those reporting quarterly, this will be 28 October 2018.

It is important to report certain TBC events occurring during 2017-18 before 1 July 2018 to avoid double counting and mitigate the risk of an excess transfer balance determination being incorrectly issued by the ATO. All funds, including SMSFs, will need to report TBC events via the TBAR. Since then, the ATO has updated its paper TBAR form (NAT 74923) to allow a fund to report up to four events for a member on a single form.

Myths cleared upOne of the myths about the new requirements for SMSFs is that funds will have to submit either quarterly or monthly TBAR reports to the ATO. This is false, as reporting is only required if an event affects a member’s TBC, meaning SMSFs with no members in receipt of a retirement phase pension will not have anything to report until one of the members starts a relevant pension.

The most common TBC events that will need to be reported via the TBAR are:

retirement phase pensions in existence just before 1 July 2017 (irrespective of size)

any of the following events that occur on or after 1 July 2017:

any new retirement phase pension commenced (including death benefit pensions and transition to retirement pensions converted to retirement phase)

member commutations from a pension account (ie the full or partial commutation of a pension) even when the commuted amounts are rolled back into accumulation phase and retained in the super system

personal injury (structured settlement) contributions

certain limited recourse borrowing arrangement payments

Another myth about the new reporting requirements is that SMSFs will have to report fluctuations in pension payments their members receive, or that event based reporting will require daily calculations of earnings and member’s account balances. These are, again, not true as the following events do not count towards a member’s TBC, and hence should not be reported to the ATO:

any pension payments paid to the member

investment earnings/losses

when a pension is closed because the member dies or the pension interest has been exhausted.